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World Bank Set To Accept Russian Takeover Of Armenian Power Grid

Սեպտեմբեր 13, 2005

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World Bank Set To Accept Russian Takeover Of Armenian Power Grid

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By Atom Markarian

The World Bank appeared resigned to the controversial takeover of Armenia’s electricity distribution network by a state-run Russian company on Tuesday when its top Yerevan-based official said the process is now proceeding in accordance with the law.

Roger Robinson said the decision by the owner of the Electricity Networks of Armenia (ENA) to seek government permission for its sale to Russia’s Unified Energy Systems (UES) dispelled the bank’s concerns regarding the change of ENA ownership.

“It was very important that the public of Armenia saw that the [legal] rules were followed,” Robinson told reporters. “And I am personally pleased to see what I think are the rules now being followed.”

Midland Resources Holding, a British-registered firm that privatized ENA three years ago, asked Armenia’s Public Service Regulatory Commission last week to endorse the network’s sale to a UES subsidiary. The move came two months after a bombshell revelation of a 99-year “management contract” for ENA that was signed by the Russians and Midland’s Canadian owner, Alex Shnaider.

The June deal, initially presented as an acquisition, provoked strong criticism from the World Bank and the U.S. government’s Agency for International Development (USAID). Both agencies argued that under Armenian law and the terms of ENA’s 2002 privatization Midland can not sell the utility without the government’s consent.

Midland later clarified that it remains the de jure owner of ENA and therefore did not have to seek government approval for the deal. But it eventually decided to seek such approval and stop having any connection to ENA.

“That is in compliance with the law of Armenia, the [2002] share purchase agreement and the license agreement [between Midland and the Armenian government],” Robinson said. “That’s what we asked everybody to do anyway and that is exactly what has happened.”

While noting that the outcome of Midland’s application is “uncertain,” Robinson indicated that its approval by the state regulator would not be frowned upon by the World Bank. “The very important thing in a utility is the importance and the strength of the regulator,” he said. “The regulator has a very important technical and transparency function. We have great confidence in the regulator here in Armenia.”

“So I think that with a strong and active regulator, the problems that some people are worried about can be avoided,” added the World Bank official.

Russian energy giants, which already control the bulk of Armenia’s power generating facilities, have for years been trying to get hold of the distribution network. The World Bank and other Western donors are thought to have been opposed to that.

Energy Minister Armen Movsisian publicly spoke out against ENA’s sale to UES last March. He argued that that run counter to one of the key aims of the decade-long reform of the Armenian energy sector: separation of units generating, transmitting and distributing electricity.

But according to Robinson, there is nothing wrong with a single company generating and distributing electricity. “I want to remind you that in other countries -- for example, France -- you have one electricity generator, distributor and transmitter. But the utility regulator is independent, technically strong, and that’s very important for Armenia too,” he said.